Housing activity often picks up in the spring, but this year, housing affordability concerns and recession fears are impacting seasonal trends. While mortgage rates dipped enough for housing transactions and building activity to surge in February, these metrics looked sluggish for March. Many homeowners and renters are staying put, waiting out a potential recession, while those looking to move are seeking more affordable areas.
As of January, almost 30% of all work was performed out of people’s homes, a six-fold increase from before the pandemic. In busy urban areas, the share is even higher. The availability of work-from-home positions coupled with sky-high prices in the busiest metros is causing people to move further away than ever before. They’re choosing smaller communities with more affordable home prices and a lower cost of living to combat budgetary pressures while also aiming for desirable locations with booming economies that haven’t yet grown too crowded with transplants.
The quarterly Wall Street Journal/Realtor.com Emerging Housing Markets Index, released in April, indicates the most popular cities that are drawing new homebuyers in droves. It’s based on supply and demand, affordability, median days-on-the-market, and several indicators of economic health and quality of life, such as appealing amenities and plenty of jobs that pay good salaries. None of the emerging markets identified by the index are located in the West, the region most notorious for high housing prices. Instead, they’re in smaller metros where first-time homebuyers can afford local home prices with local wages.
For example, Lafayette, Indiana, tops the list with a median list price of about two-thirds of the national median price in March. A major manufacturing hub and college town, the city has proximity to both Indianapolis and Chicago. 18 of the 20 emerging markets had median list prices below the national median—the exceptions were Manchester, New Hampshire, which is considered one of the hottest housing markets in the country right now, and Knoxville, Tennessee, which is highly ranked in the U.S. News list of Best Places to Live. In both Manchester and Knoxville, rents are rising rapidly as well.
The Top 20 Up-and-Coming Real Estate Markets
These are the top markets that are attracting home buyers in the spring of 2023, according to the Emerging Housing Markets Index, along with their March 2023 median listing price, population, and unemployment rate.
| Rank | Market | Median Listing Price | Population | Unemployment Rate |
|---|---|---|---|---|
| 1 | Lafayette, Indiana | $289,000 | 224,709 | 2.8% |
| 2 | Bloomington, Illinois | $339,000 | 170,889 | 3.5% |
| 3 | Elkhart-Goshen, Indiana | $275,000 | 206,921 | 3.2% |
| 4 | Lebanon, Pennsylvania | $372,000 | 143,493 | 3.1% |
| 5 | Fort Wayne, Indiana | $339,000 | 423,038 | 2.7% |
| 6 | Topeka, Kansas | $249,000 | 232,670 | 2.9% |
| 7 | Sioux City, IA-NE-SD | $305,000 | 149,365 | 2.6% |
| 8 | Omaha-Council Bluffs, NE-IA | $345,000 | 971,637 | 2.4% |
| 9 | Springfield, Illinois | $144,000 | 206,898 | 3.9% |
| 10 | Manchester-Nashua, New Hampshire | $550,000 | 424,079 | 2.4% |
| 11 | Janesville-Beloit, Wisconsin | $331,000 | 164,381 | 3.3% |
| 12 | Columbus, Ohio | $375,000 | 2,151,017 | 3.2% |
| 13 | La Crosse-Onalaska, WI-MN | $334,000 | 139,211 | 2.4% |
| 14 | Johnson City, Tennessee | $413,000 | 208,068 | 3.4% |
| 15 | Springfield, Ohio | $172,000 | 125,622 | 3.8% |
| 16 | Hickory-Lenoir-Morganton, North Carolina | $349,000 | 366,441 | 3.3% |
| 17 | Burlington, North Carolina | $368,000 | 173,877 | 3.6% |
| 18 | Columbia, Missouri | $367,000 | 213,123 | 1.9% |
| 19 | Waterloo-Cedar Falls, Iowa | $263,000 | 167,796 | 2.9% |
| 20 | Knoxville, Tennessee | $470,000 | 893,412 | 3.1% |
The Bottom Line for Investors
For investors, this list of emerging markets is worth keeping an eye on since an influx of home buyers in an area can lead to rising home prices and rents. Furthermore, most of these cities are still more affordable than the national median home listing price, providing newbies with an opportunity to break into real estate investing while giving seasoned investors a chance to buy with more money down.
However, the rising popularity of these markets won’t necessarily shield them from price downturns in the event of a severe recession. And, as always, it’s important to crunch the numbers on individual deals to ensure you’ll get the kind of cash flow you’re looking for. Still, this list may provide a starting point for your research, especially if you’re taking an interest in the Southern and Midwestern regions of the United States.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.